Good day and welcome to the WABCO Fourth Quarter 2008 Earnings Release Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Mike Thompson. Please go ahead.

Mike Thompson

Thank you Mark, Good morning everyone and welcome to WABCO's quarterly conference call. Today we will present our fourth quarter and full-year 2008 results, as well as our current operating framework for 2009. With us this morning is Jacques Esculier, our Chief Executive Officer and Ulrich Michel, our Chief Financial Officer.

Before we begin, I would like to remind you of a few things. First, this call webcast and the presentation that we are using this morning are available on our website /www.wabco-auto.com under the heading WABCO Q4 and full-year 2008 results. Replay of this call will be available through Wednesday, February 11.

Second, as shown on chart 2 of the presentation, certain forward-looking statements that we will make today are based on management's good faith, expectations and belief concerning future developments. Actual results as you know may differ materially from these expectations as a result of many factors relevant examples of which are set forth in our company’s form 10-K and quarterly reports.

Lastly, some of our remarks contain certain non-GAAP financial measures as defined by the SEC. Reconciliations of the non-GAAP financial measures to the most comparable GAAP measures are attached as an appendix to this presentation and to our press release from this morning, both of which are posted on our website.

With that I will turn the call over to Jacques Esculier.

Jacques Esculier

Thank you, Mike. Good morning to you all and happy New Year. First, I would start by kind of glancing rapidly through the highlights of our performance for the full year 2008 and this first quarter that we unfortunately be the first quarter of contraction in our revenues after 27 very successful consecutive quarters of growth at WABCO.

Starting with the full year 2008, I would say 2008 has been an extraordinary year built three major phases. One, covering the first two quarters with an exceptional growth of 14% up to 16% actually in the second quarter. The second phase I would call is holding pattering that is Q3 generating a meager 2% growth. And I would call the third phase, the landslide that we have witnessed in our Q4.

Now altogether, the year generated basically a flat level of revenues year-over-year. I would say it's flat in dollars from the operational standpoint it was incredibly challenging and certainly more challenging than just a flat year we started by across the first six months building up significant levels of additional capacity, both in assets and people.

Then we had to extremely rapidly reverse in the later part of the year constraining our expenses, investments as well as obviously starting reduce our workforce. And across all these kind of constraints and particular evolution of things, WABCO was still able to hold margin at 11.6%. And actually when you look at it at performance level, we even increased slightly by 4 basis points and versus 2007.

This superb execution supporting also a pretty good level of productivity was also kind of a supporting a nice rise in our EPS up 25% versus 2007 and a significant record cash flow in excess of $240 million leading to a conversion rate way beyond 100%.

Now when we look at the fourth quarter in particular, I can tell you that it was a, I think in all our memories, as a very special period during which the global demand for commercial vehicle literally fell off the cliff leading to a decrease in our revenues of 25% reported in local currencies.

Now again given the speed and the depth of this reverse in trend, the supply chain and the overall company had to react extremely rapidly and fortunately enough as you know we had anticipated as early as August that we could see a significant drop ahead in the market demand and we had already started to kind of adapt the company to a lower level of demand.

So overall, I would say we are successful and I really repeat successful at keeping a margin of 9.5% of performance EBIT level in spite of all this, which is down 12.9% versus 2007. This resulted in EPS of $0.62 at performance level, down 39% and steal a pretty good free cash flow of almost $60 million for the quarter.

Next page, the drop of 25% in our revenues is based on a drop of demand from our OEMs resulting in 30% less revenues from the channel, a contraction of our aftermarket revenues by 14% and a continuous decrease in our sales in the US through our joint-ventures by 12%.

Now when you look at the way the market behaved in the different regions of the world for this fourth quarter and in particular for the December month as compared to the revenue behavior of WABCO in those different regions, one can see immediately that this time we did not outperform our market like we do usually. And this is directly explained by the fact that our customers have started to drastically adapt the inventories of our parts to align them with this new rate of production.

For example, in China, we are delivering compressors. We are actually the single source of compressors for a large truck manufacturer that in the first of the year was dealing about 10,000 trucks a month, in December we got just short of 4,000 trucks. And during that month of December, we did not receive one order for compressors.

So, that's to prove that again, our customers are definitely lowering their level of inventory. The exact way that you see in December is also kind of helpful to give you an idea of the situation of the market as we step into this New Year.

But what is really remarkable here it is debt abreast and also the speed of this unprecedented drop in the market, basically in all areas of the world. But it's a fact of life that we have to deal with. Again fortunately, we had to certain extent anticipated fairly early, but that's probably setting the stage for this year 2009 to come.

I am going to turn it now over to Ulrich, our CFO, who will take us through our financial performance. Ulrich?

Ulrich Michel

Thank you, Jacques. Good morning everyone and thanks again for participating in our earnings call. I will quickly walk you through the results of Q4, provide an update on our cost saving actions, initiated in the second half of 2008 and then discuss the full year 2008 results as well as our current liquidity position.

So turning to chart 5, we will walk through the details from sales through earnings per share for the quarter looking at both reported and performance numbers. Performance numbers for 2008 are adjusted to remove operational streamlining and separation cost, the one-time impact from the adoption of a new accounting standard as well as one-time and this pre-tax item.

In addition, comparisons to 2007 are adjusted for currency translation effect. As

Jacques mentioned, sales saw decline of 25.5% in local currencies, which is significantly worse than the 3% to 7% declines we would have expected the last time we talked to you.

The impact of pricing pressure on the other hand was only 1.5% for the quarter, well below the low end of the range we typically see for our business, which reflects our continued efforts to manage prices decreases and pass on material increases to our customer.

Profit fell 31.2% with adjusted gross profit margin decreasing 215 basis points compared to last year. With the second, and deeper than expected decline in sales for the fourth quarter, we experienced significant under absorption in our factories. It is notable that even in this environment. we were still able to generate materials and conversion productivity to the tune of $12 million, and that levels comparable to other quarters.

Operating and other expenses were down $22.5 million, or 14.3% versus the same quarter last year. I consider this an outstanding achievement. Our ability to decrease operating expenses to this extent came from our remarkable cost reduction effort executed in fourth quarter, which I will go through in more detail in a few minute.

Operating income was down 50.9% for the quarter with adjusted operating margin decreasing by 440 basis points versus last year. As you can see this was the result of the unfavorable impact from pricing, volume, mix overhead under absorption and labor inflation of nearly $77 million, partially offset by $34 million of improvements in materials and conversion productivity as well as operating expense reduction.

Performance EBIT was $43.3 million for the quarter with margins declining 490 basis points in local currencies. Equity income was the smallest for the quarter driven by our Indian and North American joint-ventures. We were able to finish the year with a performance tax rate of 19%, which excludes separation and discrete tax items.

Our reported net income for Q4 was $21.2 million, down from $54.4 million last year. Removing streamlining, separation, the one-time impacts on the adoption of a new accounting standard and one-time and discrete tax items performance net income was $39.5 million, versus $69.6 million a year ago, a decrease of 43%.

Furthermore, earnings per share on a reported basis was $0.33, while performance earnings per share for the quarter was $0.62 versus $1.2 a year ago, a decrease of 39%. Although we suspended the share repurchase program back at the start of the fourth quarter, earnings per share benefited from the $153.5 million worth of shares repurchases is completed earlier in the year.

Free cash flow for the quarter was $57.7 million, which represents the conversion rate of over 270% of reported net income and an increase of $11.9 million from 2007, which was mainly driven by the improvement in working capital for the quarter.

Turing to chart 6, I would like to take you through the results of our profit improvement actions taken in the second half of 2008. As we had anticipated declines in the overall commercial vehicles market, we took immediate actions as early at Q3 to help mitigate the impact by implementing a plan targeted to preserve approximately $20 million of profit through various cost reduction and other initiatives.

$4 million of this target was realized in Q3 leaving $60 million to be attained in the fourth quarter if you might recall from our earnings call. As you can see from this chart, we achieved more than double the original cost savings target as we planned for in our guidance provided in October.

These cost savings were realized across the entire organization at all levels and the large part occurred in the area of our operating expenses. It includes savings from activities as broad as counseling position, acceleration of our headcount reduction, reductions in incentive compensation, vacation and overtime accruals, rigorous management of all types of discretionary spending, price and customer management and on and on.

These accelerated measures helped to mitigate the impact of decline in sales of approximately $140 million that was not contemplated in our previous guidance provided to you in October.

Our people really left no stone unturned, and we are very proud of the way employees across the entire organization quickly stepped up to the challenge and far exceeded the targets we gave to help preserve our financial result.

Now let's turn to chart 7 and go through the full year 2008 results. This was a year with two separately distinct tasks as Jacques already described. Deferred growth in the first part of the year was followed by a significant downturn experienced in the second half of the year.

Although, sales have increased by 7% year-over-year, they were flat when excluding the impact from foreign exchange. Performance EBIT has improved by 8% with a 30 basis points increase in March into an excluding transactional FX impact, which again could be reached through successful actions taken to mitigate the market decline have seen in the later part of the year, and our improvement in the execution driven by the WABCO operating system.

Performance earnings per share has increased even by 25% for the full-year, which was helped by the reduction of our full-year performance tax rate to 19% as well as the reduction of $3.4 million diluted commons shares outstanding attributed to the $153.5 million worth of share repurchase during the year.

Finally, free cash flow for the year was $241.2 million, a 113% conversion rate of reported net income. Overall, we consider financial performance in 2008, very solid given even the developments we have seen.

Now let's turn to chart 8 where we provide an update on our liquidity position and the eventual funding of the pending EC fine. The left side of this chart provides for the details of the liquidity currently available to WABCO.

As you probably have seen our 8-K filings from a few weeks ago, the asset securitization program entered into in the second quarter of 2008 was terminated by ABN-AMRO, now Royal Bank of Scotland, ultimately due to downgrade of the Royal Bank of Scotland by Standard & Poor's.

That agreement had provided for the financing of up to 150 million euros worth of receivables with off balance sheet accounting treatment. As you can see currently, we would still have enough liquidity available to proper defined even as the potential maximum without any financing outside of our existing credit agreement.

The borrowings under our exiting credit agreements are limited by a series of covenants though. The most important one is that our total embeddedness should not exceed three times a trailing four quarters projected EBITDA.

In the course of 2009 this convent could limit our ability to borrow under our exiting credit agreement. We will therefore most likely not try to extend the one-year facility that are about to come due into 2009, but rather focus our efforts on addition sources outside of the EBITDA covenant.

As stated in our 8-K, we are in the process of replacing the terminated asset securitization program with another facility similar in nature and expect to be able to report the detail of this in due course.

We are also pursuing other opportunities of supply chain financing that include off balance sheet accounting treatment and falls outside the constraints of the EBITDA covenant. Meanwhile, we will of course continue to manage our capital spending and working capital to help me to get lots of borrowing capacity.

Lastly, if we receive and if we find at an amount exceeding our available liquidity at that time, we will try to negotiate a payment plan with the commission. This possibility is for seaming cases of extreme hardship and substantiated financial difficulty.

With our understanding that it is not in the commissions' interest to force companies out business due fine payments, and we believe that they will be sensitive to the current economic environment, which we make sure they are well aware of, although our available liquidity at the end of 2008 is adequate for our potential funding needs. We are anticipating future developments and proactively addressing potential constraints that we see occurring later in 2009.

Now I will turn it over to Jacques who will discuss in more detail the environment we are dealing with in 2009, Jacques?

Jacques Esculier

Okay thanks, Ulrich. And now looking ahead we first anticipate a full year of low demand. We collectively have a fairly poor visibility on the level of market activity in these coming months because it is fully related actually and connected to the overall industrial activity across the world. And I don’t think anybody on earth today is capable of accurate forecast of this industrial activity.

However WABCO like many other company needs an operating framework to just kind of set out companies at the right level of capacity. To take the decisive actions that are needed to align expenses and investments to the market environment. Therefore we have to drive assumptions and what you see here is basically the result of what I would call the current estimate that we have of all key markets we play in. Actually all those markets are fairly heavily affected as we see it today starting with Europe with an estimated or assumed drop in demand by 40% plus or minus 5%.

However we also see the significant drop in emerging countries with a 30% plus or minus 5% drop, and then another step in the slowdown of the North American market, that I remind you has been already significantly affected in the last couple of years.

Now, this market slowdown is actually kind of anticipated to be more severe during the first half of the year and particularly during the first quarter as we believe our customers who had focused a lot of attention at burning out their inventory of finished products.

Looking at the market of trailers, basically, its fully aligned significant drop expected during the year. The aftermarket is also expected to drop further especially in the first part of the year. However, we strongly believe the aftermarket will recover faster than the OE market because any improvement and the need for transportation will immediately have a very strong impact on the utilization of existing trucks, leading again to additional need for maintenance.

This overall kind of set of assumptions again does not include or constitute any potential impact that those global stimulus packages that all regions or major countries in the world are actually in a process of implementing.

Next page. Based on these market assumptions, and also on our ability to continue to roll out new products and to expand our global reach, we have decided to size our organization based on an assumption of 30% decline in the revenues.

Again, the overall lack of visibility surrounding decision is kind of forcing us to beyond a lot of flexibility in our operations to be able to rapidly fully benefit of any kind of additional demand beyond what we had anticipated or to further reduce the level of expenses and capacity if the demand happens to be even lower.

We have, redirected 100 engineers about, to a specific cost reduction program aimed at increasing the efficiency of our material productivity actions by the redesign of our products and also by optimizing the value that we get from our supply base across the world.

We have also put in place an extremely rigorous process involving me and all the leadership team to monitor and manage the risk related to our suppliers as well as our customers.

Then we give you truly stable an update of our streamlining efforts as you remember back in October we had committed to eliminate 1000 position between then and the end of Q2 2009. Actually I am very proud to share with you that as of today, we have already executed almost 70% of this program which is a record given the constrain that you know we have to face in the European environment.

Now unfortunately since October last year we have seen this degradation in the market that actually led us to increase the list of positions by another by another 400 positions making our new objective to eliminate 1400 positions before the end of Q2.

You know, because we told you before and I want to again point out that cutting cost is not only limited to streamlining efforts, it's also a systematic continuous scanning and review of all discretionary expenses that we have successfully driven as Uli, shared with you in the last month.

One additional initiative that we actually proposed to the board is to reduce the size of the cash compensation for management depending on the level of management from 10% to 24%.

I also reduced the size of my leadership team by three positions combining two business units as well as having the key accounting leaders now reporting directly into our BU leaders.

We also have expended this reduced work time program that are affecting our factories right now at the level about 20% at the time for Q1. We expanded that program to cover all OpEx employees except those who have to work on very critical programs that can not take any delays. And finally, we are working with our partner CEVA to continue to optimize our logistics networks and make it more efficient to drive productivity for the coming year.

Page 11, this significant level of effort that has been directed towards the right sizing activities is not what we are limiting our self to fortunately life at WABCO is also covering the focus at continuing to drive what I call the power of what has made this company so successful in the past and will continue to drive its success in the future.

We have during Q4 reached some very good strong achievements and milestones that I will call three core strategies, namely globalization, technology and execution.

First we have finalized this joint venture we FUWA which is the largest trailer axle manufacturer in the world located in the southern part of China to which we would provide the needed air disc brakes. Our objective is to produce in the coming years approximately 250,000 brakes for those axles.

The second is the introduction of our breakthrough automated manual trans-merger automated manual transmission actually to CHTC in China. It’s really a terrific milestone for us because its once of the most sophisticated product we have designed and that we are producing and we are happy to actually install it on board the Chinese truck at CNHTC.

Finally we are working towards setting up the stage for a good transition when we will take the full maturity and full control of the WABCO TVS joint venture that we have over there.

In technology we have launched 14 new products that are two of them that I would describe breakthroughs during the IAA truck show that took place in Hanover in September 2008. The two breakthroughs are began this Autonomous Emergency Braking System which is an innovation, it's an invention. Actually WABCO bought this device to reward a commercial vehicle to make it differently safe from the road. And second one is this Modular Transmission Automation System that again we are starting to deliver in China.

But our execution I think we have made very significant progress in the implementation of our WABCO Operating System which emulates the Toyota Wave and is inspired by the lean philosophy and overall management framework. This drove to a significant improvement in our productivity as described by Ulrich. It also again helped to improve the overall quality of our service to customers helping us to decrease the quality expenses from 1.6% to 1.2% of our revenues and also participating and driving actually the certified improvement of the zero kilometer PPM level.

And that actually allowed us to have access to 15 awards coming from customers across the world Brazil and US, Europe, Asia for our quality, our reliability and our overall service level.

Turning to page 12, this page actually summarizes what I call our operating framework that was developed based on the assumptions that we made for our market and our decision to right size the company. It is not intended to be our guidance given the uncertainty that would deliver of uncertainty that we have around market assumptions and other factors. That would draw drivers to LIBOR, quality of EPS forecast that is absolutely not appropriate to be called a guidance.

Despite the very challenging estimates in the decrease of revenues which is combined with the assumption that the first-half of the year will be significantly lower in revenues and volume as compared to the second-half, WABCO is still capable in his very constraining operating environment to drive our performance to 3% to 6%. And we are also able as you see to drive a positive performance free cash flow overall for the year.

Now the key assumptions that are sustaining this operating framework as our cost of the material that finally provides some tailwind we assume it will be probably at the LIBOR of 0.4% of our material spend and in this we have not considered any potential impact from the EC fine whether we're talking about paying the fine or paying the interest related to the financing of the fine and also and finally I would like to point out that Q1 is expected to be below the point of the year force.

Finally in summary 2008 was a very interesting year that has demonstrated our ability to perform and that’s also demonstrated our ability to adapt rapidly to a changing environment. Full-year 2009 will be challenging but we will continue to do what it takes to maximize value for shareholders in this challenging, and also we will continue to be passionate about securing the future of WABCO by continuing the pursuit of our strategic initiative around globalization, technology and execution. And I would say that when markets slumped fears rise to the challenge.

Or good afternoon. In the first quarter and I am not referring guidance here. Are you guys going to be making money in the first quarter or around breakeven?

Jacques Esculier

Steve, I would say that we will try to not loose money, but I don’t provide guidance but our objective is not to loose money.

Steve Tusa - JP Morgan

I am sure the investing community can appreciate that objective these days. When it comes to the liquidity situation, any kind of visibility I know that governments are quite busy these days with other things. But any visibility on timing, any update on the EU decision to come?

Jacques Esculier

We have kind of intensified our connectivity with kind of government bodies kind of that could understand better or kind of appreciate the description that we make of our situation today, and what we provide them a lot of information, we don’t receive too much in extent which is definitely no more in favor. But I would say that overall, we understand as you said that they have a lot in their plate to-date, it seems that the debt that we had kind of anticipated of May, may actually not happen, it could be actually even later than May. What they are saying though is that it probably would definitely happen in the second half of the year, but that’s what we have to deal with. The only thing that we are really focusing a lot of attention to is to really kind of again defend our position certainly kind of feed them with the situation that we are going through which is very well shared, actually right now across the price and across the EU.

Steve Tusa - JP Morgan

Okay. And then the Western European production forecast does that include, I see the line for Western Europe and what do you expect from eastern Europe in 2009? I am not sure why it shouldn’t include the polar.

Jacques Esculier

Usually what I am saying is the western be it trucks, actually go to Eastern Europe are included in that 40%. What we call Eastern Europe abusively is Russia and our best assumption right now for Russia would be at about the same level as where we say either in our emerging countries.

Steve Tusa - JP Morgan

Okay. Great. Thanks a lot.

Jacques Esculier

Okay. Thanks Steve.

Operator

And your next question will come from Jeff Hammond with Keybanc Capital Markets.

Jeffrey Hammond - Keybanc Capital Markets

Good morning guys.

Jacques Esculier

Good morning, Jeff.

Ulrich Michel

Good morning, Jeff.

Jeffrey Hammond - Keybanc Capital Markets

Just back to the liquidity situation, do you see any challenges replacing the accounts receivable securitization program that went away? And then just a better sense of where some of the other options from a financing standpoint that would outside of any debt covenants?

Ulrich Michel

The financial markets at the moment are not that liquid as they use to be. But talking to the theories of banks about replacing our asset securitization program and we're hopeful that we can replace it. But I also said that it is not as easy as it use to be. Also, the size might be a little smaller than what we had envisioned before pricing will probably be more expensive than what we had before.

On the other opportunities, one is, some of our customers offer supply-chain financing scheme for their suppliers. So, this is one thing we're pursuing. Then there are schemes we've related to inventory financing that are off balance sheet. We're also in talk to banks that are on this. But this is also the subject that maybe a year ago, you had always a series of banks that were pitching and trying to sell these programs to you, and now the fountains are a little bit dryer than they used to be and yet to look a little harder for these things. But these are few updates samples of opportunities we are pursuing that.

Jacques Esculier

But Jeff, I would add that we have very high quality receivables and we are talking about receivables from large truck manufactures in Europe, it would be pretty kind of embarrassing if we could not find anybody to basically cover those receivable better as Ulrich said, it's a little bit complicated in today’s world then it was plenty of few weeks ago.

Jeffrey Hammond - Keybanc Capital Markets

Okay, can you based on your discussions with the EC or your understanding, if we would get to fine outside your liquidity availability, I mean how would that likely be structured in terms of payment plan.

Jacques Esculier

Well, again, they have been some cases of companies that we are and what we call hardship, to basically cover their fines and there are examples where from my perspective kind of validate the fact that EU will then work with you. And kind of provide you with some installments or things like this, that we will allow you to pay other St. Peter Time Wizard, basically kind of excessively hurting the business because decision this world where employment is quite to be pressures in Europe, I don’t think it would be very welcome for the European commission to for us, company like us to have to make kind of negative decisions related to employment.

Jeffrey Hammond - Keybanc Capital Markets

Okay, just on aftermarket I guess, I had expected that to hold up a little bit better. Is there an inventory correction going on or is it just that activity levels are under so much pressure that just maybe a little more color on what you are specifically seeing there?

Jacques Esculier

Well, Jeff we don’t have enough kind of information right now to be very accurate on how we analyze what's going on right now in the after-market. What I can tell you is number one, it effects both channels, independent after-market as well as OES. Number two, I would say that reading through the papers there is a definite slowdown in demand for transportation across all mean of transportation including obviously trucks. And you hear stories about biz that just can't use all your trucks.

So, when you put all those stories together and you kind of understand that to a certain extent there is less trucks on the roads driving less miles, so it leads to less activity in the after-market which on the other hand gives you a lot hope for a rapid correction the other way as soon as this people will start to drive again all their trucks all the time like it was again only a few weeks ago.

Jeffrey Hammond - Keybanc Capital Markets

Okay and then I know visibility is very cloudy but as you look at your production expectations for '09, you step down things pretty hard. Where would you say that you have the highest degree of confidence versus maybe you might be concerned whether it would be some additional downside risk to what you are laying out now?

Jacques Esculier

You mean what?

Jeffrey Hammond - Keybanc Capital Markets

Just within different regions, maybe what regions might you see this minus 5 delta versus your production forecast or maybe things hanging a little bit better?

Jacques Esculier

Well, Jeff again, I mentioned that we did not take into account any kind of positive impact of those stimulus packages, and I think again having no clue what’s going to happen and certainly not how it would be translated into additional industrial activities driving to more transportation leading urgent any to more breaking systems produced at WABCO. But I think it could have potentially a good solid impact.

I would have, there are rumors in the US right now, there are little bit more pessimistic then what we presented to you as a 25% down again a kind of being in the middle of cloud and we are trying on instruments right now, but if you ask me there is this kind of indication that it could potentially be, may into more sever or on the other hand w receive some good new as you know from Asia as particularly, from China that things may start to kind of slow down in terms of the drop or next president we head on equated and anything around those emerging countries, I think could fix up there rapidly and may be end of being much more optimistic then what we considered today again as the best assumption given what we know.

Jeffrey Hammond - Keybanc Capital Markets

Okay, that’s helpful guys, thanks.

Jacques Esculier

Okay, thanks Jeff.

Operator

And next we hear from Mark Shanky with Neuberger.

Mark Shanky - Neuberger

Good morning every body.

Jacques Esculier

Good morning, Mark.

Mark Shanky - Neuberger

Okay my first question has to do with the liquidity. Right now as I look at your balance sheet the company has approximately 400 million in cash and 250 million in debt. How much of your cash is in places that you can readily access?

Jacques Esculier

All.

Mark Shanky - Neuberger

Okay. So there is actually a very strong liquidity position as we stand today given the balance sheet and the potential to generate positive cash flow in 2009. Would that a be a fair statement?

Jacques Esculier

I think I would say at that moment it is very liquid.

Mark Shanky - Neuberger

Okay. I can understand the desire to have, but…

Jacques Esculier

The only thing watching again, you are referring to a performance cash flow that is positive, but it excludes those cash that we dedicate to the streamlining efforts, right.

But again believe me I mean take out the fine of this picture we can really easily afford it that's not an issue at all as you can imagine.

Mark Shanky - Neuberger

All right. So the issuance in terms of getting new bank line there is one having flexibility and be define up. Is there any indicate -- in other words if the fine line initiative you probably won't be too worried about your bank lines?

Jacques Esculier

No, we wouldn’t go and see again here the funding. I think we would to run our business where unit cover, we would be out there buying back stocks?

Ulrich Michel

Yes, then we would face watching and I hope we would be faced actually ultimately with the decision on how to fully take advantage of the cash position we have in terms of acquiring businesses, in terms of buying back shares and we are starting the program, we still have, we had $500 million of authorization till the end of 2009 and we still have quite a bit to go.

Mark Shanky - Neuberger

Okay. I just wanted to make that little bit more clear.

Ulrich Michel

Yes.

Mark Shanky - Neuberger

Alright. The situation sounds as you went through the presentation but I wanted to put in a little bit more of a context.

Jacques Esculier

Thank you Martin because that’s an accurate way of looking at it and really it’s only the fine that keeps us up at night so I would say when it comes to liquidity we want to be sure to cover as much as we can.

Mark Shanky - Neuberger

Again my second question is the – in the framework that you’ve provided you noted that the corporate tax rate goes up to 30% this year. Could you give us some understanding as to why that is happening and what might be the things that could drive the tax rate back towards the low twenties where it has been?

Jacques Esculier

Look we didn’t want to give guidance but I thought I remind you guys of things we've said before. We have the supply chain structure in Europe where basically we have to lead a minimum amount of risk and associated profit in a number of call it in Europe and we focus our risk and opportunity to make our loose money in a location in Europe where we effectively pay there a little taxes because of renewals and other structures we've put in place. Now the advantage of this extra structure is that if we make a lot of money our tax rate is very low and we've improved it in the first quarter of this year as you can see with our 19% performance tax rate and it gets even lower and I think it’s 15%. We've had a very efficient structure as long as we make money but the downside to these structures is if we loose money or if we make less money we still have leave some table income taxable income in a series of countries so that’s why our rate goes up as our income goes down but on the other hand Mike you need to think about the you we're in the 30s with rates in the most companies if they pay around special federal rate or tax rate.

Mark Shanky - Neuberger

Okay.

Jacques Esculier

And soon as we would come back to a higher level of profitability we are going to kind of enjoy again from lower tax rate and exactly what we have been kind of demonstrating in the last quarters.

Mark Shanky - Neuberger

Okay thank you. I will get back in queue.

Ulrich Michel

Thanks Martin.

Jacques Esculier

Thanks, Martin.

Operator

(Operator Instructions) Next we hear from John Smith, Marvel Management.

John Smith - Marvel Management

Hello guys.

Jacques Esculier

Hi John

John Smith - Marvel Management

Hello, question on just guidance clarification first of all. You said revenues for '09 were down 20%, underlying down 25% to 35%. If I kind of put FX currency adjusted would that be more like 45% to 50% from a revenue perspective, 50% down. I guess the second question is on, I guess revenues as well. I have just seen, Scania who reported in order mix including cancellations, down of for round about 100% which is similar to all the last quarter.

And we're kind of on a variety sheets some of these OEMs, as such, it's kind of a weak order pattern, is 35% realistic because it's what we are hearing or hearing I guess that’s first clarification on guidance and I want you to start it with that. Thanks.

Jacques Esculier

Okay John. Well let first let me tell you it's not a guidance again, it's an assumption and I really want to be particular on this because its necessary given again what you described which is a fairly kind of different ways of looking at this. Now the 25 to 35 environment that we described at the revenue level is actually supporting those assumptions that we described earlier relating to the market and the rate that we have kind of taken as of to date to describe the Europe market is minus 40% plus or minus 5%. Which I think is very fairly well aligned with what some of our customers have already shared with you guys in the last phase.

John Smith - Marvel Management

Okay, thank you and then just for back on to I guess liquidity and kind of cash flow. Again I apologize I was just late on the call but if I just look at the free cash flow generated for this quarter about $58 million on a 9.5% margin you are talking of underlying margin of around 3%, 3% to 6% for around next year.

I am just kind of doing kind of simple math and may be I am kind of missing something. It looks like $50 million to $60 million free cash flow for the year depending on what or has of working capital. I am just kind of concerned I mean are there any kind of bank covenants that stipulated certain kind of EBITDA to net debt equity ratio then may be kind of coming under pressure here or I am just trying to understand your debt position a little bit clearer thanks?

Ulrich Michel

May be back to your third question you also asked about the tax rate the numbers we gave in our operating framework with minus 25 to minus 35 are in local currency. So excluding exchange rate. And your guess on the exchange rate is as good as mine. I think the major exports of is euro and dollar, where as I think 1.28, 1.29 today.

The average of last year was 1.47 or so. So we're at low. But where it will go, and so as I said, your guess is as good as mine. And then, we do not want to give guidance on our cash flow forecast, we said, we don’t give guidance, we don’t. There is really so many moving things just in this parallel, but as we said in our liquidity discussion, we do anticipate our borrowing capacity to reduce based on our EBITDA covenants. So, this is why we brought this page in. How far it will go down, I do not want to speculate.

John Smith - Marvel Management

Okay. And just a final clarification, do we use 1.28, 1.47? Just assume is kind of levels which is obviously a 12% shift in the FX, combined to your 35% kind of worst case scenario? Are you looking at just under 50% from a actual revenue perspective?

Ulrich Michel

What we always say in terms of sensitivity, we've always said, like it's 10% strengthening or weakening of the dollar, of course it's about a 9% movement on the top line.

John Smith - Marvel Management

Fine.

Ulrich Michel

This probably is still the same. So, you can add the two and then you're there.

John Smith - Marvel Management

Does that top line includes pricing. So, 25 to 35, is that a unit or unit plus price?

Ulrich Michel

It includes price.

John Smith - Marvel Management

Okay. Many a thanks. I'll get back in line.

Ulrich Michel

Thanks, John.

Operator

Thank you. We have no questions in the queue. I'll now turn the conference back over to Jacques Esculier for any closing or additional remarks.

Jacques Esculier

Okay. Well I just wanted to thank you all for participating in this conference and while as we charge off a very good, strong and better quarter than we had anticipated and looking forward to talking to you during my next trip to the U.S. So certainly doing our next conference at the end of Q1. Have a good day, thank you.

Ulrich Michel

Hopefully with better news.

Operator

And that does conclude our conference call. Thank you for joining us.

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